Food inflation eases, price pressures remain

India's food inflation eased in end January on moderating prices of fruits and vegetables but annual headline inflation in January is still expected to remain high.

India's food price index rose 13.07 percent and the fuel price index climbed 11.61 percent in the year to Jan. 29, government data on Thursday showed.

Headline inflation in December was 8.43 percent stoked by high food inflation which reached a one year high in end December last year and analysts say that figure could shoot higher in January.

In the prior week, annual food and fuel inflation stood at 17.05 percent and 11.61 percent.

The primary articles price index was up 16.24 percent in the latest week, compared with an annual rise of 18.44 percent a week earlier.

The one-year swap and the benchmark five-year swaps were both down 1 basis point each at 7.45 and 8.10 percent respectively after the data as the market had already priced in lower food inflation.

Analysts say the data shows the Indian central bank has tightened monetary policy appropriately and is not behind the curve.

Indian food price inflation dropped sharply in the latest week to 13 percent year on year from 17 percent the previous week. This is in line with our view of a fall in WPI in February, said Dariusz Kowalczyk, an analyst at Credit Agricole-CIB in Hong Kong.

It may also calm down fears of RBI (the central bank) being sharply behind the curve, which could bring back foreign portfolio investors and be positive for the rupee, he said.

The Indian central bank, the Reserve Bank of India (RBI), has raised seven times since March last year but that has had limited effect on moderating inflation.

In its January 25 policy review, the RBI had upwardly revised its end March inflation projection of 5.5 percent to 7 percent. Despite monetary and administrative measures, high inflation has become entrenched in the economy, a realisation which has prompted top policy makers to prepare ground for people to live with high inflation.

The Indian Prime Minister Manmohan Singh warned last week that high inflation was a serious threat to India's growth momentum.

India is expected to grow at 8.6 percent this fiscal year that ends in March 2011, provisional estimates by the government released this week showed.